After a couple of rough market months, biotech stocks took an especially brutal beating this week. Plunging 5% on Friday, the Nasdaq Biotechnology Index sank into bear market territory by the end of the week, down more than 22% from its peak in July. The decline is roughly double the losses of the S&P 500 and the Nasdaq over the same period.
Investors blame the biotech bloodletting on Democratic presidential candidate Hillary Clinton, whose tweet about her proposal to control drug prices wiped $40 billion in market value off biotech stocks on Monday. The biotechnology index fell 13% for the week as a whole.
Until their recent downfall, biotech stocks were among the best market performers this year. The sector rose more than 31% from the beginning of the year through their high on July 20, 10 times as much as the S&P 500 rose during that time, and triple the gains of the Nasdaq. And many pro money managers were still bullish on certain biotech companies (and some still are).
Since the biotechnology index topped out about two months ago, though, some of its constituents have plummeted more than 80%, including Tetraphase Pharmaceuticals (TTPH). The major stock losers dragging down the index, though, are drug companies such as Biogen (BIIB) (down 30%); Celgene (CELG) (-19%); and Alnylam (ALNY) (-39%). Shares of generic drug maker Mylan (MYL), another heavyweight in the index, have also fallen 36% over the same stretch, though their decline has been independent of the trend in the sector—due largely to its success in blocking a hostile takeover bid from Teva Pharmaceutical Industries (TEVA).
Of course, some investors will simply see biotech’s weakness as a buying opportunity for the stocks. But John Toohey, head of equities at USAA Investments, thinks Clinton’s tweet could be an overhang on biopharmaceutical companies’ stocks well into 2017: No matter who ends up in the Oval Office, she put drug prices on the table as a policy issue that both parties’ candidates, as well as regulators, will likely take up. “Hillary Clinton changed the conversation this week,” Toohey told Coins2Day. “We’re much more worried not per se about Hillary Clinton, but that this becomes a much bigger issue on the campaign trail.”